1 / 13

Production Possibilities Frontier

Production Possibilities Frontier. Chapter 1, Lesson Three Cont. Recall. Opportunity cost is the value of the best forgone alternative. PPF.

makana
Télécharger la présentation

Production Possibilities Frontier

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Production Possibilities Frontier Chapter 1, Lesson Three Cont.

  2. Recall • Opportunity cost is the value of the best forgone alternative

  3. PPF • The production possibilities frontier (PPF) is a diagram that shows production combinations available to an economy given finite factor inputs and technology • It is a model economists use to illustrate the concept of opportunity costs

  4. Simple Linear Model • Say you are a house painter and you and your crew can paint either 20 small houses or 10 large houses in a week. You can also paint a number of combinations of the two. • It takes the same amount of time to paint one large house as it does to paint 2 small houses.

  5. Simple Linear Model • So what is the opportunity cost of painting one large house? • What is the opportunity cost of painting two small houses?

  6. Simple Linear Model

  7. Simple Linear Model • We use these points on a graph to find the PPF 10 Large Houses 5 0 0 10 20 Small Houses

  8. Simple Linear Model • All points on the line are said to be efficient because they represent the maximum number of houses that can be painted with available resources and technology • You could paint any combination of houses on or inside the PPF

  9. Simple Linear Model • These points inside the model are attainable, but inefficient—you are not working up to your capabilities. • Points outside of the PPF are unattainable and cannot be reached due to the lack of resources required to reach those points.

  10. Simple Linear Model • You could increase your PPF if you increase your factors of production, or resources.

  11. Non Linear Model • Most real world examples are curved when they are put on a PPF. This is because of the law of increasing opportunity costs. • Law of increasing opportunity costs states that as the production of anything rises, the opportunity cost of forgone production will eventually increase.

  12. Non Linear Model • It gets harder and harder to produce as you increase production. It will cost more.

  13. Non Linear Model Point C: Unattainable Must Increase Factors of Production to Reach Guns Point B: Efficient and Attainable Point A: Attainable but inefficient Butter

More Related